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Yara pays $750m for Bunge's Brazil fertilizer unit

Yara International, which earlier this week flagged a quest for acquisitions, on Friday revealed the purchase of Bunge's Brazilian fertilizer business, boosting its prospects in what many see as a promising market.

The all-cash deal, valued at $750m, will see Norwegian-based Yara acquire Bunge fertilizer assets including 22 blending facilities, brands and warehouses.

The pair has also entered into a long-term fertilizer supply agreement, allowing Bunge to maintain supplies to its fertilizer clients.

'Key growth market'

"Brazil is a key growth market where there is significant further potential for acreage and yield increases," Jorgen Ole Haslestad, the Yara chief executive, said.

"Today's agreement also creates a strong platform for future growth opportunities within the Brazilian fertilizer industry."

Alberto Weisser, the Bunge chairman and chief executive, said that the deal was, "a good one for both companies.

"It enables Bunge to size our fertilizer activities so they are a more streamlined complement to our agribusiness operations and provides Yara with a larger position in a high-growth market."

Deal potential earlier this week highlighted Yara's desire for deals, particularly in higher-value fertilizer products such as NPK, a popular fertilizer combining the main nutrients of nitrogen, phosphate and potassium.

Torgeir Kvidal, the Yara finance director, suggested the company, which has seen net debts as a proportion of equity, fall to levels below 0.1, from a figure of 0.75 early in 2009, will exploit its low borrowing levels "to realise well-timed profitable growth", potentially including acquisitions.

Yara said it is targeting annual synergies from the deal of at least $25 million, to be realized by 2014.

Yara is targeting an 8m-tonne increase in production and joint venture sales in the six years from 2010 to 2016, due to "significant" mergers and acquisition activity.

The Norwegian group's favourable cash position will also enable it to carry out all merger and acquisition activity without issuing new equity, except for the "very largest" acquisitions.

Bunge expand into complementary value chains

US-based Bunge, which is the world's second-largest oilseed processor will retain and operate its fertilizer terminal at the port of Santos.

The White Plains-based company has been in transition in recent years, looking for opportunities to "increase the scale" of agribusiness and food operations and to "further expand into complementary value chains such as sugar" while attempting to reduce its heavy debt burden.

Bunge two years ago sold its Brazilian fertilizer assets to mining giant Vale for $3.8bn in cash while the company has invested up to $1.5bn in acquiring Brazilian sugar mills, taking advantage of limited credit availability.

The decision to sell its Brazilian fertilizer mine freed the group from the "significant" capital required to develop the facility. 

Bunge still has mining assets in Argentina and the US.

Earnings forecast

Yara forecast its earnings per share in 2013 would come in between NOK20-57, depending on the margins allowed by Chinese exports.

The group a year forecast 2012 earnings of NOK28-55 per share, with analysts currently believing Yara is on track for a NOK37.89-a-share result.

Yara shares closed up 0.6%  at NOK282.20 in Oslo. In New York, Bunge shares added 1.6% to $72.89. 

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